GAO: Fed Officials, Bankers Concerned About Dividend Cut

Government Accountability Office report on Friday found that although the 2015 highway bill’s reduction in the dividend rate for Federal Reserve member banks with assets of more than $10 billion has had little short-term effect on Federal Reserve membership and bank operations, concerns arise for the future.

“Commercial banks and Federal Reserve officials we interviewed expressed some concerns about the dividend rate modification,” the GAO said. “Certain Federal Reserve officials with whom we spoke were concerned about increased membership attrition as a result of the dividend rate modification.”

Fed member banks with less than $10 billion in assets were worried that the 2015 bill reducing the dividend would set a precedent for “future transfers from the Reserve Banks, and that they would reconsider Federal Reserve membership if the dividend rate threshold were reduced to include banks in their asset range,” the GAO noted.

The American Bankers Association and Seattle-based Washington Federal are currently challenging the 2015 dividend cut in the Court of Federal Claims. In 2016, banks with more than $10 billion in assets lost $1.14 billion to this taking, and the amount is expected to balloon to $17 billion over 10 years.